Board diversity, external governance, ownership structure and performance in Ethiopian microfinance institutions

Abstract

This research investigated the effect of governance dimensions such as board diversity, external governance and ownership structures on the sustainability and outreach performance of Ethiopian MFIs. A panel data of 13 MFIs for 6 years (2003-2008) is used for the study. No study of such type is conducted in the past for the Ethiopian environment. The result indicates that more women on board of directors help in depth of outreach whereas board members with a financial skill and local businessmen reduce depth of outreach. Regulation has an opposite effect in that it reduces sustainability without curtailing depth of outreach. Rating of MFIs activity by rating agencies is found to have a good effect of increasing sustainability and at the same time cater for more women borrowers. On ownership structure it is found that MFIs dominantly owned by individual investors lends less to women and more profitable indicating the commercial orientation of their operation